*445 Rose and Frank Company Appellants; v J. R. Crompton and Brothers, Limited, and Others Respondents.

House of Lords 5 December 1924 [1925] A.C. 445 Earl of Birkenhead , Lord Atkinson , Lord Sumner , Lord Buckmaster , and Lord Phillimore. 1924 Dec. 5. ContractAnimus contrahendiAgreement binding in HonourOuting the JurisdictionRepugnancy. By successive arrangements made before 1913 between an American firm and an English company the American firm were constituted sole agents for the sale in the United States and Canada of tissues for car-bonising paper supplied by the English company. The greater part of these tissues was manufactured for this English company by another English company. By an arrangement made between the American firm and both English companies in 1913 the English companies expressed their willingness that the existing arrangements with the American firm, which were then for one year only, should be continued on the same lines for three years and so on for further periods of three years, subject to six months' notice. This document, after setting out the understanding between the parties, including several modifications of the previous arrangements, proceeded as follows: "This arrangement is not entered into, nor is this memorandum written, as a formal or legal agreement, and shall not be subject to legal jurisdiction in the Law Courts either *446 of the United States or England, but it is only a definite expression and record of the purpose and intention of the three parties concerned, to which they each honourably pledge themselves, with the fullest confidence - based on past business with each other - that it will be carried through by each of the three parties with mutual loyalty and friendly co-operation. This is hereinafter referred to as the 'honourable pledge' clause." Disputes having arisen between the parties, the English companies determined this arrangement without notice. Before the relations between the parties were broken off the American firm had given and the first mentioned English company had accepted certain orders for goods. In an action by the American firm for breach of contract and for non-delivery of goods:Held, (1.) That the arrangement of 1913 was not a legally binding contract. (2.) That at the date of the arrangement of 1913 all previous agreements were determined by mutual consent, but (3.) That the orders given and accepted constituted enforceable contracts of sale. Order of the Court of Appeal [1923] 2 K. B. 261 reversed.

APPEAL from an order of the Court of Appeal 1 reversing an order of Bailhache J. The appellants carried on business in New York as dealers in tissues for car-bonising papers. The respondents, J. R. Crompton and Brothers, Ld. (hereinafter called "Cromptons"), and the respondents, Brittains, Ld., were English manufacturers of tissues for carbonising papers, but the last named respondents manufactured exclusively for Cromptons. The facts are fully stated in the report of the case before the Court of Appeal and sufficiently appear from the opinion of Lord Phillimore. The appellants sued both the respondents for damages for breach of contract and for damages for non-delivery of goods. By their statement of claim they alleged a series of agreements made between 1907 and 1911 between them and the respondents, Cromptons, whereby the appellants were to have the sole sale in certain areas of certain kinds of tissues manufactured or sold by these respondents. They also alleged an agreement of July, 1913, between the appellants and both the respondents, under which both the respondents agreed to confine the sale of their tissues in certain areas *447 exclusively to the appellants. This agreement contained the honourable pledge clause set out in the headnote. They also alleged breaches of this agreement in 1918 and 1919, and that in May, 1919, the respondents had wrongfully repudiated this agreement. Alternatively, they alleged that, if the 1913 agreement was not valid, the earlier agreements with the respondents Cromptons were still in force in 1919, and that the breaches alleged were breaches by these respondents of those agreements. They also alleged that in January, February and March, 1919, they had given and the respondents Cromptons had accepted a series of orders for tissues, and that these respondents had failed to deliver part of the goods so ordered. The respondents by their defence denied that the 1913 arrangement was a legally binding contract or that the previous agreements continued in force after the 1913 arrangement, or that the alleged orders and acceptances constituted legally binding contracts, and pleaded that by virtue of, or, alternatively, at the date of, the 1913 agreement all the previous agreements were determined by mutual consent, and that the appellants were estopped from relying upon them. Bailhache J. held that the 1913 arrangement was a legally binding contract, and he further expressed the view that the orders and acceptances also constituted legally binding contracts, and so declared in his judgment. The Court of Appeal (Bankes, Scrutton and Atkin L.JJ.) were unanimous in holding that the 1913 arrangement was not legally binding, and they also held by a majority (Atkin L.J. dissenting) that the orders and acceptances did not constitute legally binding contracts. The Court declined to decide whether the pre-existing agreements continued in force after the 1913 arrangement, and thought that this matter should be left to be determined by the Court of first instance. There was a cross appeal on this point by the respondents Cromptons, who asked that it might be declared that the preexisting agreements had ceased to be binding on the parties after the arrangement of 1913. *448

1924. June 23, 24, 26. R. A. Wright K.C. and C. J. Conway for the appellants. The agreement of 1913 was introduced after several temporary contracts to stabilize the position of the appellants and, apart from the final clause, it is a legally binding contract. The honour clause, if construed as depriving the document of any legal force, is inconsistent with the document as a whole, and must be rejected on the ground of repugnancy: Sheppard's Touchstone, 8th ed., vol. ii., c. 21, s. 4, p. 373; Forbes v. Git2 ; Furnivall v. Coombes 3 ; Williams v. Hathaway. 4Balfour v. Balfour5 is distinguishable, because that was a case of a family arrangement and the parties were not at arm's length. When once there is found to be a bargain between the parties, that cannot be nullified by words such as those used in the concluding clause of this agreement. Further, that clause is an attempt to oust the jurisdiction of the Court, and is therefore void: Scott v. Avery 6 ; Atlantic Shipping and Trading Co. v. Louis Dreyfus & Co.7 ; Czarnikow v. Roth, Schmidt & Co.8 On the question whether, on the assumption that the main contract is bad, the pre-existing contracts were determined, the Court of Appeal took the new that this was a separate issue and declined to express any opinion upon, it because it had not been discussed in the Court of first instance, and the appellants accept that view. The point not having been dealt with in either of the Courts below, this House will not treat it as open. As to the orders, they are not the less enforceable contracts of sale because the exclusive agency agreement is not legally enforceable.

Representation
Sir John Simon K.C. and Clauson K.C. (with them Eastham K.C. and James Wylie ) for the respondents and the appellants on the cross appeal. [EARL OF BIRKENHEAD. Their Lordships do not desire to hear you on the main point.] Assuming that the respondents are right on the main point, the question arises whether the earlier arrangements survive. *449 If the arrangement of 1913 is meant by all the parties thereto to be binding in honour only it is inconceivable that the old arrangements should be held to survive. The arrangement of 1913 being by its express terms unenforceable, it would be absurd to go back to the old arrangements. The inevitable inference from the document of 1913 is that when the parties put their business arrangements on a basis of honour they contemplated putting an end to the old agreements. This was a new arrangement with new parties and new terms, and it has been acted on for several years. [They cited British and Beningtons v. North Western Cachar Tea Co.9 ; Morris v. Baron & Co.10 ; Pearl Mill Co. v. Ivy Tannery Co.11 ] This point could only be decided in one way, and the Court of Appeal ought to have decided it. There was no occasion for any further trial. As to the orders, no legal obligation arose at any time before the goods were shipped. There was no intention on the part of Cromptons to accept a legal obligation in regard to delivery. Assume that the honour agreement had been a legally binding agreement, its terms could have been embodied in the contract resulting from the giving and acceptance of an order. So, this being an honour agreement, its terms are still incorporated, but they have no binding effect. C. J. Conway in reply on the main appeal and for the respondents on the cross appeal. The question whether the agreement of 1913 abrogated the earlier agreements was not open to the Court of Appeal, as the point had not been taken in the Court below. Assuming that the point is now open, an honourable understanding cannot have effect
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as an agreement that the old agreements should not survive. Morris v. Baron & Co.12 is distinguishable, because there there was a contract, although it could not be enforced, because it was not in writing as required by the Statutes of Frauds. This document is simply a scrap of paper. The House took time for consideration. *450 1924. Dec. 5. LORD BUCKMASTER. My Lords, I had prepared an independent opinion in this case, but I have had an opportunity of reading the judgment which will shortly be read by my noble and learned friend, Lord Phillimore, with which I agree, and I think there is no need for any further independent judgment on my part; and my noble and learned friends, Lord Birkenhead and Lord Sumner, also desire that I should express their agreement in the judgment about to be read. LORD ATKINSON. My Lords, I also have had an opportunity of reading the judgment prepared by my noble and learned friend, and I concur with it. LORD PHILLIMORE. My Lords, at the conclusion of the arguments in this case none of your Lordships had, I think, any doubt what our judgment ought to be, but as there were several points to be dealt with, your Lordships took time to consider how best to express your decision upon them. We are all still, I believe, of the same mind, and there is no reason for further delay. The appellants, Rose and Frank Company, carry on business in the United States as dealers in car-bonising tissue paper, which they have been in the habit of buying from England, then treating in some manner and selling in the perfected state. Their relations with the respondents, James R. Crompton and Brothers, Ld., began as early as 1905; and there were three arrangements, which for the purposes of this appeal we may assume to have been binding contracts, under which Rose and Frank Company were to be entitled to have the exclusive or nearly exclusive right of selling Crompton and Brothers' carbonising tissues in America, subject to twelve months' notice - a notice which was never given. In 1913 circumstances led to the relations between the parties being reconsidered; and it was then for the first time brought to the notice of Rose and Frank Company that the respondents, Brittains, Ld., had been interested with *451 Cromptons in supplying the carbonising tissue; and thereupon the three parties entered into the arrangement which has given rise to the present litigation. It is dated July 8, 1913, and in the earlier part of it appears to be a binding agreement, under which the English companies agree to confine the sale of all their carbonising tissue in the U.S. and Canada - subject to certain defined exceptions - and Rose and Frank Company agree to confine their purchases of the same stuff exclusively to the two English companies and to do their best to increase their trade. The arrangement was to last for three years subject to six months' notice. The other supplementary provisions need not be stated; but towards the end of the document appears this remarkable clause:
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"This arrangement is not entered into, nor is this memorandum written, as a formal or legal agreement, and shall not be subject to legal jurisdiction in the Law Courts either of the United States or England, but it is only a definite expression and record of the purpose and intention of the three parties concerned, to which they each honourably pledge themselves with the fullest confidence - based on past business with each other - that it will be carried through by each of the three parties with mutual loyalty and friendly co-operation." There is no explanation upon the record, and no suggestion was made by counsel at the Bar of any reason for the introduction of this remarkable clause. During the progress of the hearing it occurred to some of your Lordships that it might have been inserted in order to avoid the operation of some American law discouraging monopolies. But this was a mere surmise. For whatever reason it was introduced the clause is there, and it remains for the Courts to give the proper effect to it. The terms of this arrangement, whatever may be its force or effect, were continued by correspondence for a second three-yearly period and by arrangement in August, 1918, till March 31, 1920. During the early part of 1919 differences arose between the parties. The respondents thought that the appellants were not conducting the business as they should, and that their *452 (the respondents') interests were suffering. Accordingly on May 5 they demanded by telegram compliance with certain requirements, threatening, if the requirements were not met, to communicate direct with the consumers. On the same day the appellants telegraphed back that they refused to consent to terminate the agreement and would hold the respondents accountable for any violation of contract, and they demanded immediate shipment of the parcels they had ordered; but on May 9 and 10, by cable and letter, the respondents definitely refused to allow further deliveries to be made. During the existence of the arrangement the appellants had been giving to the respondents, Cromptons, from time to time, orders for certain numbers of cases of tissues to be delivered at various dates. The documents took this form: an order from the appellants to Cromptons: "Please enter our order for the following goods and ship." Then followed either a specific date - usually the first of the month or, if no specific date, then "as soon as possible," and the port to which they were to be shipped, either New York or sometimes Toronto, and the nature of the articles required. In compliance with these orders the respondents used to ship the goods. A few of the orders sent in this way in the early part of 1919 were complied with, but the others had not actually been complied with by the time of the quarrel and were not fulfilled afterwards. On November 19, 1919, the appellants brought their action, treating the arrangement as a binding contract and claiming damages for the breach, alternatively averring that the three earlier agreements were still in force and claiming damages for their breach, and as a third alternative relying on the several specific orders for parcels of goods in the early part of 1919 as having been accepted by the respondents, Cromptons, and constituting specific contracts and claiming damages for the non-delivery of these goods. As to this part of their claim, they made no case against the respondents, Brittains, Ld.
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The respondents joined in their defence, and contended that the arrangement was not a binding contract, that the earlier *453 agreements were not binding contracts or had expired by loss of time. They also offered an alternative plea that if the respondents, Cromptons, ever made any of the earlier agreements, then "all of such agreements were determined by mutual consent by virtue of or alternatively at the date of the signing of the document referred to in paragraph 8 of the statement of claim and/or alternatively the plaintiffs by signing the said document and acting thereon are estopped from relying on any of the said alleged agreements." As to the appellants' claim in respect of the specific orders, they denied that these orders gave rise to any contracts, said that the requirements of s. 4 of the Sale of Goods Act had not been complied with, and further that these orders and acceptances, if any, were given as part of a specification under the arrangement of 1913, and that if that arrangement did not constitute any legal contract, neither did these orders with provisional acceptances constitute contracts. They further pleaded misconduct on the part of the appellants justifying them in determining the agreement. By an order made by McCardie J. the action was transferred to the commercial list, and it was ordered that the Court should try all questions of liability "except the issue as to whether the appellants committed certain acts which were alleged by the respondents to have justified the respondents in determining the agreements (if any) between the parties" ; and all questions as to damages. The order provided that the Court should construe all the agreements. These issues were then tried by Bailhache J. He decided that the arrangement of 1913 was a binding contract, and further that if the appellants were ultimately held to fail on this ground, they had a good case as to the orders and acceptances. He then dealt with two comparatively small money questions, directing judgment for the plaintiffs for 244l. odd with costs up to the date of the admission of this claim, and for the respondents, Cromptons, for 2124l. odd with costs up to the date of admission; and he gave the appellants the costs of the hearing before him in any event. The present respondents appealed from this order, and the *454 Court of Appeal came unanimously to a different conclusion to that of Bailhache J. with respect to the arrangement of 1913, and by a majority (Bankes and Scrutton L.JJ.; Atkin L.J. dissenting) thought that Bailhache J. was also wrong on the question of orders and acceptances. They declined, however, to determine whether the pre-1913 arrangements were still in existence, and whether if in existence they were enforceable, and said that this matter remained to be tried. They gave the respondents costs of the issues on which they were successful and the costs of the appeal. Appeal and cross appeal have been preferred from this order and are now before your Lordships for decision. With regard to the first and most important point, that of the legal force or want of force of the arrangement of 1913, your Lordships are, I conceive, of one mind with the Court of Appeal. I do not propose to repeat their reasoning, with which I venture to concur, but I wish to add one observation. I was for a time impressed by the
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suggestion that as complete legal rights had been created by the earlier part of the document in question, any subsequent clause nullifying those rights ought to be regarded as repugnant and ought to be rejected. This is what happens for instance in cases where an instrument inter vivos purports to pass the whole property in something either real or personal, and there follows a provision purporting to forbid the new owner from exercising the ordinary rights of ownership. In such cases this restriction is disregarded. But I think the right answer was made by Scrutton L.J. It is true that when the tribunal has before it for construction an instrument which unquestionably creates a legal interest, and the dispute is only as to the quality and extent of that interest, then later repugnant clauses in the instrument cutting down that interest which the earlier part of it has given are to be rejected, but this doctrine does not apply when the question is whether it is intended to create any legal interest at all. Here, I think, the overriding clause in the document is that which provides that it is to be a contract of honour only and unenforceable at law. With regard to the next point - namely, the right of the *455 plaintiffs to recover damages for non-delivery of the goods specified in the particular orders for the year 1919 - it should be stated that the defence under the Sale of Goods Act was abandoned at the trial. On this point I agree with your Lordships in preferring the judgments of Bailhache J. and Atkin L.J. to that of the majority of the Court of Appeal. According to the course of business between the parties which is narrated in the unenforceable agreement, goods were ordered from time to time, shipped, received, and paid for, under an established system; but the agreement being unenforceable, there was no obligation on the American company to order goods or upon the English companies to accept an order. Any actual transaction between the parties, however, gave rise to the ordinary legal rights; for the fact that it was not of obligation to do the transaction did not divest the transaction when done of its ordinary legal significance. This, my Lords, will, I think, be plain if we begin at the latter end of each transaction. Goods were ordered, shipped, and received. Was there no legal liability to pay for them? One stage further back. Goods were ordered, shipped, and invoiced. Was there no legal liability to take delivery? I apprehend that in each of these cases the American company would be bound. If the goods were short-shipped or inferior in quality, or if the nature of them was such as to be deleterious to other cargo on board or illegal for the American company to bring into their country, the American company would have its usual legal remedies against the English companies or one of them. Business usually begins in some mutual understanding without a previous bargain. However, as to this claim for damages for the unfulfilled orders, the respondents have, under the terms of the order of McCardie J. the defence open to them that the conduct of the appellants was such as to justify them in determining the agreements to deliver. There remains the matter of the cross appeal. This, I think, succeeds. The unenforceable agreement cannot (it is true) be relied *456 upon as cancelling the previous agreements, because it was to have no legal weight. But the parties who entered into the relations implied by the unenforceable agreement must have previously cancelled, as they could do by mutual consent, all the earlier agreements.
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Upon the documents which were before the Court - which were indeed the only materials before the Court - the proper inference to be drawn was that the arrangement of 1913 was, though unenforceable, intended to supersede all previous arrangements or agreements, whether enforceable or unenforceable. The principle laid down in Morris v. Baron & Co.13 , followed in British and Beningtons v. North Western Cachar Tea Co.14 , is the one which governs the present case. It was a pity, I think, that the Court of Appeal determined, apparently against the view of Scrutton L.J., to remit this issue for trial instead of deciding it themselves. I think they should have decided it, and decided it in favour of the respondents and cross appellants. Upon the whole, I would advise your Lordships to restore the judgment of Bailhache J., except that part of it which declares "that the agreement of July, 1913, mentioned in paragraph 8 of the statement of claim is a legally binding agreement against both defendants," and which directs that the plaintiffs should have the costs of the hearing before him as against the defendants Brittains, Ld., and I would advise that the plaintiffs (the present appellants) should have the costs of the appeal to the Court of Appeal as against the respondents and defendants, Cromptons. I presume that the respondents and defendants, Brittains, Ld., had no separate costs on that appeal. With regard to the costs of the appeal to your Lordships' House, the appellants have succeeded in what may prove a very substantial part of their case, but on the other hand the result of the issue still to be tried may wipe out their claim. The respondents, Brittains, Ld., have been successful, but I imagine that before your Lordships' House, as in the Court of Appeal, they had no *457 separate costs. I think that the right order would be that neither side should have any costs of the appeal, but that the cross appellants should have the costs of their cross appeal. Any costs of the action not disposed of by these orders should be disposed of by the judge who tries the remaining issue. The case should be remitted to the High Court of Justice with a declaration that it be disposed of accordingly.

Representation
Solicitors for the appellants (respondents on the cross appeal): Wild, Collins & Crosse . Solicitors for the respondents and the appellants on the cross appeal: Rawle, Johnstone & Co. , for Addleshaw, Sons & Latham, Manchester. Order of the Court of Appeal reversed, and judgment of Bailhache J. restored, except so far as it declares that the agreement of July, 1913, is a legally binding agreement, and except so far as it directs that the plaintiffs should have the costs of the hearing as against the defendants, Brittains, Ld. The respondents in the original appeal, J. R. Crompton Brothers, Ld., to pay the costs in the Court of Appeal. Each party to bear their own costs respectively in respect of the original appeal to this House. Cross appeal allowed. The respondents in the cross appeal to pay the costs of the said cross appeal. Cause remitted back to the King's Bench Division to do therein as shall be just and consistent with this judgment.